ARE mutual funds among the most convenient vehicles to invest in equity markets? Not necessarily! Age is one of the primary criterions for investing in mutual funds. What matters more is your ability to understand what level of risk you can comfortably take at different times in your life. And finding a mutual fund that aligns with that level of risk hence, becomes more critical.

Today, mutual funds are able to serve the needs of both, an investor who is very conservative and wants minimal risk, and also who can take risk aggressively.

Of course, like with anything in life, the likelihood of higher returns is greater when you take higher risk and vice-versa.

For the very conservative investor, one can even start by investing in money-market funds which are less volatile and tends to offer better liquidity, compared with traditional investment option. On the other end of the risk spectrum are pure equity funds, that may be volatile in the short-term, but tend to offer much better returns over a longer investment horizon, compared with money-market funds.

So how do you decide what share of your investments should be in equity funds? There is an old thumb rule of investing which says that 100-minusyour-age can be your percentage allocation to equity mutual funds. The rest can be in funds with lower risk such as money market and debt funds.

However, with average life expectancy in India growing rapidly to 66 years in 2010, compared with 58 just 20 years ago, this rule of thumb now often gets challenged. In over two decades that I have been associated with advising clients, I have seen investors at the age of 70 feeling comfortable investing a greater share of their assets in equity funds, and seen young investors in their 30s favour lower-risk debt funds. In either case, one can argue that both investor types challenged traditional wisdom that the younger you are, greater the risks you can take.

What it implies is that both investors had a more developed appreciation of their respective financial goals taking into account the time they can stay invested, their experience with mutual funds as a category, the return they need on their capital and the risk they were willing to take to achieve their goals. All of the above, when combined, aims to make a comprehensive and confident investment decision.

It is also well known globally that mutual funds are amongst the most convenient vehicles to invest in equity markets.

The Indian regulator is keen to enable increased ownership of mutual funds beyond just the metros to the common man right across the length and breadth of India. This will not only help develop the Indian capital markets, but equally aims to give a more direct route to participate in the growth of corporate India and the Indian economy at large, thereby growing their wealth.

Regardless of their age, in my career, I have met investors who have never in vested in mutual funds, to those who actively invest in them. The former often hesitate because they do not know how to choose a fund from over 2000 choices that exist today, while the latter is often hassled with the administrative burden of keeping track of the performance of funds, filling subscription and redemptions forms, writing cheques and reconciling their bank statements.

To address both their needs, a new category of mutual funds has now begun to se are what are called multi manager funds. These researched funds aim to invest in the best of breed funds across the industry, thereby, eliminating the burden of selecting funds for the investors. To sum it up, age is but just one factor to take into account when investing in mutual funds. And there is never a substitute for gaining firsthand experience.